Question

1. Wasatch Corp. (WC) received a $200,000 dividend from Tager Corporation (TC). WC owns 15 percent of the TC stock. Compute WC’s deductible DRD in each of the following situations:

a. WC’s taxable income (loss) without the dividend income or the DRD is $10,000.

b. WC’s taxable income (loss) without the dividend income or the DRD is $(10,000).

c. WC’s taxable income (loss) without the dividend income or the DRD is $(99,000).

d. WC’s taxable income (loss) without the dividend income or the DRD is $(101,000).

e. WC’s taxable income (loss) without the dividend income or the DRD is $(500,000).

Answer 1

SINCE WASATCH CORP.(WC) OWNS 15 PERCENT OF TC STOCK, DIVIDEND RECEIVED DEDUCTION IS EQUAL TO 50 PERCENT (as per new rule.before 2017 it was 70%)

CALCULATION OF DRD AMOUNT

a) DRD =95000

B)DRD= 95000

C)DRD=50500

D)DRD=100000

E)DRD=100000

	SITUATION A	SITUATION B	SITUATION C	SITUATION D	SITUATION E
GROSS INCOME	-10000	-10000	-99000	-101000	-500000
DIVIDENT	200000	200000	200000	200000	200000
DRD %	50%	50%	50%	50%	50%
DRD AMOUNT	$100000	$100000	$100000	$100000	$100000
TAXABLE INCOME	190000	190000	101000	99000	300000
DRD %	50%	50%	50%	50%	50%
LIMITATION	95000	95000	50500	49500	150000

CALCULATION OF LIMITATION

TAXABLE INCOME	190000	190000	101000	99000	300000
DRD %	50%	50%	50%	50%	50%
LIMITATION	95000	95000	50500	49500	150000

CALCULATION OF NOL

TAXABLE INCOME	190000	190000	101000	99000	300000
DRD AMOUNT	$ 100000	$ 100000	$ 100000	$ 100000	$ 100000
NOL	90000	90000	1000	(1000)	20000

In case of NOL full amount of DRD is allowed and if there is no NOL the limitation amount or DRD amount which is less is allowed.

CALCULATION OF DRD

LIMITATION	95000	95000	50500	49500	150000
DRD AMOUNT	$ 100000	$ 100000	$ 100000	$ 100000	$ 100000
NOL ?	NO	NO	NO	YES	NO
DRD	95000	95000	50500	100000	100000